August Category M reductions – timescale of impact on contractors

August Category M reductions – timescale of impact on contractors

September 26, 2017

Community pharmacy contractors should be aware of when their payments will be impacted by the reductions in Category M prices implemented in the August Drug Tariff.

At the beginning of October, a pharmacy would receive an advance payment for the dispensing month of August. This is an estimated payment, taking into account the pharmacy’s number of declared items for August, and the pharmacy’s average item value (AIV) from dispensing month of July. Because AIV will have dropped in August in line with the reductions in Category M prices in that month, the advance for August is likely to overstate the value of August’s prescriptions.

Subsequently in November, the pharmacy will receive the balancing payment for August, and the advance payment will be recovered. This means that the 1 November payment is the point at which the impact on contractors will be most significant as the balance for August will be lower than the recovery of the advance.

A worked example is illustrated below for an average volume pharmacy, whose AIV is reduced by 17p per item from dispensing month of August:

“This is an extremely challenging time for contractors; particularly given the Government’s acceptance that its funding cut, which community pharmacy strongly opposed and campaigned against, would lead to some pharmacy closures. We recommend that contractors seek professional advice, from their accountant in the first instance.”

We hope the resources below will also help contractors to better understand and plan.

The F-Code or ODS code is the the unique code issued to your pharmacy which identifies you to NHS Prescription Services. You can find this on any pricing authority statement or your prescription submission document (FP34c).